Explore the benefits of a Health Savings Account

Health Savings Accounts (HSAs) were introduced in 2003 as a tax-advantaged way for working Americans to pay for out-of-pocket health care costs. Since then, they’ve also gained popularity as a versatile retirement savings tool.

HSAs are only available to individuals enrolled in a High-Deductible Health Plan (HDHP), as well as their spouse and dependents. With an HSA you can pay for qualified medical expenses with tax-free dollars, but it’s especially effective for creating a nest egg and strategically growing those assets to fund future health care costs.

“An HSA is a great emergency fund,” says Griffin Geisler, a wealth strategist at RBC Wealth Management–U.S., “and one of the most common emergencies people run into is a health emergency.”

The IRS sets annual limits on the total amount that can be contributed to an HSA, including from yourself, your employer and any other source. In 2025, individuals can contribute up to $4,300 and those with family coverage can contribute $8,550. In 2026, the limits increase to $4,400 for an individual or $8,750 for a family. Like most retirement accounts, there is an additional $1,000 catch-up contribution allowed for individuals age 55 and older.

Triple tax advantage

One of the standout features of an HSA is its tax efficiency. “An HSA is tax-free in and tax-free out,” Geisler says. These accounts offer a unique triple tax benefit:

• Pretax contributions: HSAs are funded on a pretax basis, potentially reducing your taxable income for that year.
• Tax-free growth:  Any interest and investment earnings from within the HSA are tax free.
• Tax-free withdrawals: Distributions are tax free when used for qualifying health care expenses.

A long-term approach

While many people use their HSA to fund current-year medical expenses, the account’s real value comes as an investment vehicle for the future.

Unlike a flexible spending account (FSA), you are allowed to carry your HSA balance across calendar years and invest the assets. By paying for your current health care expenses out-of-pocket, you can use your HSA to create a significant reserve for future medical needs.

Consistently contributing the maximum annual amount and investing the balance can lead to substantial growth. For example, investing just $100 per month over 20 years could potentially turn $24,000 into over $43,000 (assuming a 5.5 percent rate of return).

Once you enroll in Medicare, you can no longer contribute to your HSA under most circumstances, but you can still use those funds to pay for your health care. For added flexibility, you can withdraw from your HSA for any purpose after age 65—you’ll just have to pay tax on any non-medical purchases.

HSA qualified medical expenses

The range of HSA-eligible expenses is expansive and includes most common health care costs, including:

All qualifying expenses are eligible as long as the expenses occur after the account was established. If your HSA balance is not enough to cover the full amount of a medical bill, such as a hospitalization or other large expense, you can use other forms of payment and then reimburse yourself from your HSA later.

It’s important to keep records of your medical expenses and HSA reimbursements to ensure you are using your HSA funds correctly.

Funding your HSA

As long as you have HSA-eligible health insurance, you can contribute to your HSA. There are multiple ways to make the maximum contribution each year, including:  

• Salary deduction: During your employer’s annual enrollment period, you can elect an amount to be automatically deducted from your paycheck and deposited into your HSA on a pre-tax basis.
• Direct contributions: You can contribute to your HSA outside of your employer at any time. These contributions use post-tax dollars but may still be deducted from your taxable income in most cases.
• Employer contributions: Many employers contribute to employees’ HSAs to encourage participation in their benefits programs. This can be a valuable perk to accelerate your savings, but remember that employer contributions count toward the annual limit.
• IRA rollover: You can make a one-time, tax-free rollover from a traditional IRA into your HSA, up to the annual contribution limit.

If an account holder passes away before exhausting their HSA balance, their surviving spouse is eligible to inherit the account. The spouse may continue to use the balance with the same benefits and restrictions as the original account holder. However, if the account is inherited by a non-spouse beneficiary, the balance will be subject to tax upon distribution.

Read more from our RBC Wealth Insights report Taking control of health care in retirement.

This article was updated in October 2025.